Transparency On The Bailout? Banks: No Thanks!

from the who-needs-transparency? dept

The Associated Press is being a bit unfair with its set of "gotcha questions" it asked a bunch of banks that have received bailout money, suddenly demanding that they all explain how the money is being used and how much is being used, but it is an important issue. In handing over all of this money to banks for a stake in those banks, one would think that we, the taxpayers, deserve at least some transparency into how the money is being spent. Considering the sums handed over, this is hardly an out-of-line question. Yet, we've already seen that the promised transparency surrounding the bailout has hardly been forthcoming. And, the worst part of it is that the thing we need more than anything else right now is significantly more transparency to rebuild the trust in the financial system.

Of course, it's not the banks' fault that they're not detailing what they're doing. There's no reason for them to do so right now. However, we should be asking why the government, which rushed to hand over so much money while promising transparency, didn't require more openness as a part of the deal and hasn't done much to add any transparency to the process since handing over the cash. Sure, everyone's been pretty busy, but transparency shouldn't be an afterthought here, it should be a central piece of any economic recovery package. The fact that the government hasn't done much to increase transparency should be seen as a troubling sign.

They're depositing it in the reserve

US Banking 101.

You go to the bank to borrow money. The bank changes the balance on your account to show you have the money. That money does not come from anywhere, it is simply created by magic (I'm not making this up).

The only limit is that a fractional value of assets has to be deposited in the Reserve by the bank. To bail out the banks the reserve is giving them interest on this money deposited.

Effectively you are lending the banks money, and paying them interest on that money, to reflate the economy, increase the money supply and fill the banks full of freshly created US$.

They are therefore not lending money out because they don't want to risk bad loans and they can easily make money by this interest on the reserve (that you gave them).

So what is happening to the money? It is being used to make money from the Fed which in turn is being made by devaluing the US$ which in turn is supposed to lead to inflation, which counters the deflation.

Got that?

The moron in the car see's the engine is broken, and the car is slowing down. So he thinks, well if I bend the speedo dial to show it's travelling at 70mph then I've fixed the problem.

So off he goes and fixes the INDICATOR of the problem (the speedo/inflation figure), rather than the problem itself (broken engine / bad investments in worthless assets and trillions in derivatives of those loans).

Really, it's better people don't know how money works. It seems to be only a year ago that somebody here said he though the US keeps the money supply the same to hold the value of the $ and I pointed out the terrifying spike in M3 money supply and the subsequent hiding of the M3 number.

And people told me it was a conspiracy theory

Every time I hear a politician bringing up the children, my first thought is what is going on that they are trying to divert our attention from. When the "financial crisis" started and congress said no, and McCain and Obama met with Bush and came out speaking the same crap as him, I thought what is happening that they want to divert our attention from. Wake up America the thieves have come! Remember the cry "we have to act now to save our economy" what has change besides the pockets of a few. The bailout has changed nothing for the better. The rich stole billions with intentional fraud and have got the government to give them billions more.

Bah Humbug

hasn't helped me

I'm currently upside down on my house 100k, with a 9.5% interest rate. Yes, I was stupid for taking the deal in the first place. Back then everyone said "don't worry after a few years you can refinance", "don't worry after a few years the house will go up in value", "don't worry you can never go wrong with property".

Well, now I'm screwed. I can't refinance because I don't have 100k in the bank. Matter of fact I now have $20 in the bank. My stocks are worth nothing and I didn't get a raise for the past two years.

Saying that, I went to my bank and said "listen next month and beyond I won't be able to make the payments". I figured since the government just gave them a ton of "bail out cash" they would be willing to do one simple thing. Move my interest rate from 9.5% down to 7%. It's all I want, and it would solve the problem. Want to know what they have told me.

Your not delinquent so how is there a problem. Basically they won't do anything unless you are delinquent! And the government giving them all this cash has just empowered them to continue that policy. So honestly, I think the "bail out" just totally screwed me and my credit.

What the government should have done is start a program to promise the bank they would cover the 100k I'm upside down on so I could legitimately refinance the house. I'm not really taking the money, it's just an insurance policy for the bank should I default. Eventually the house will get back it's value and nobody has lost a dime, matter of fact everyone wins. Now that is a proper way to "bail out"

Re: They're depositing it in the reserve

Alla that may be true, but it isn't what taxpayers paid for, or what banks SHOULD be doing with the dough.

Banks will use the cash to make themselves whole as you suggest, to fix their balance sheets and spruce up cashflow. And to be certain they will avoid taking any of the same risks that got them into this mess. Sounds like what they should be doing, right?

But as tax payers we are less concerned about the banks' financial value or stock prices, and more concerned about the crisis, which is a CREDIT crisis, not a banking one. What we want, what we have every right to insist on, is that banks get back into the business of TAKING RISK and lending money. While we may not want them to do no-income verification mortgage loans and repackage them into un-valueable hedge instruments, we certainly don't want them to just hunker down and let someone else take the risk of lending. There is no someone else.

That's why transparency is so vital. We don't really care about banks being whole except as it relates to the availability of CREDIT to both consumers and businesses. Banks are shortsighted to put themselves in a defensive stance with all this taxpayer largess. If they were to start lending and taking measured, programatic risks, they'd find its an excellent opportunity to expand their customer base. Of course, so is using taxpayer money to buy other weakened lenders.

Taxpayers via their government agency, should expect to know that the money is being used to directly ease the CREDIT crisis, not to fortify the positions of banks. This is NOT the time for trickle down banking.

Re: hasn't helped me

Saying that, I went to my bank and said "listen next month and beyond I won't be able to make the payments". I figured since the government just gave them a ton of "bail out cash" they would be willing to do one simple thing. Move my interest rate from 9.5% down to 7%. It's all I want, and it would solve the problem. Want to know what they have told me.

Your not delinquent so how is there a problem. Basically they won't do anything unless you are delinquent! And the government giving them all this cash has just empowered them to continue that policy. So honestly, I think the "bail out" just totally screwed me and my credit.

First off, you're an idiot for believing what someone told you about your multi-hundred-thousand dollar purchase without doing a little research. If you had, you would have known that you can't always refinance, and property values don't always go up.

Secondly, of course the banks aren't going to adjust your mortgage until you're behind. Why would they? You have a mortgage that you can afford. You may not like it because you're upside down now, but you liked it just fine when you didn't owe more than it was worth. They're only going to change things to help you if you're in trouble. You're making the payments, ergo you are not in trouble. At least not from the banks perspective. They're only going to change things if they're taking a hit, which means that you have to start missing payments. But that's just common sense. If all you had to do was call the bank and say "Money has been kinda tight, I would like my interest rate lowered by 2.5%" then everyone would do it, and the banks would lose billions. Instead they'll wait until they start seeing signs of trouble (missed payments) and then if you talk to them they might lower the rate by 1/4%, and then eventually work their way up to whatever ends up being, in the end, the most they can get out of you.

Re: hasn't helped me

Dave,
You are frickin moron. You believed their (mortgage company or realtor) sells pitch so now deal with it. I too could a made a poor housing investment, but I am not a frickin moron so I did not. A couple of years ago, I bought what I could afford at the time. I could have bought more, but I didn't. Do I get to refinance to a cheaper rate because I was responsible? NO. The government owes you nothing. NOTHING. You are apart of the problem. Good luck with your poor decision. It turns out in the "real" world poor decisions have consequences.

The Associated Press is being a bit unfair with its set of "gotcha questions" it asked a bunch of banks that have received bailout money, suddenly demanding that they all explain how the money is being used and how much is being used, but it is an important issue

and why would that be "unfair" at all? particularly in light of the way some of the top investment banks acted recently.....

Re: Bailout?

Re: hasn't helped me

I bought a house I could afford, and would also like a free 100k in equity, but it aint gonna happen. The mortgage companies dont care whether you can put food on the table when they are trying to give hugely inflated loans and I was well aware of that even at 23 years old. That bailout was crap and shouldn't have happened in the first place. I would have preffered to see these institutions fail including the "Big 3" and see what rises out of the ashes.

Deck of Cards!

The housing market is trying to fix itself by dropping prices, but hear comes the idiots in Washington to push against the tide! They/We don't have enough money to fix the housing bubble. It will only cause more problems. The average income can't sustain the mortgages payments the market was demanding, and that is why the buble exploded! Prices will contine to fall, until Americans can afford to pay their mortgages. This goverment intervention will only slow the slide, while putting our tax dollars on the line. In the end prices will continue to fall and people will continue to walk away from their homes. These leaders are being reveled. They are idiots and they are walking on very thin ice! People will start hitting the streets soon, and protesting the higher taxes on the horizon, because of the bailots being handed out today! See you out their!

Re: Re: hasn't helped me

Oh I agree, I was a total moron for getting in to this and if I could go back I would certainly have not done it. I am the one responsible for taking the gamble and I lost.

Obviously I'm not the only moron out there because 3 out of 5 people I talk to are in the same boat. Our housing market has crashed because we were all morons. Fine I'm good with that. Call me all the names you want but that isn't going to save the economy. I am your problem, I am the next wave of foreclosures, moron or not it is what it is.

I have sold my car to keep up with payments. I have sold my boat to keep up with payments. I have closed every credit card I could to keep up with payments. If I had gotten my usual raises I would be able to make the payments. If I hadn't lost 10k in stocks I could make my payments. IF IF IF..

I talked to three people recently who simply send screw it and stopped paying. I may be a moron but I am responsible and have done everything in my power to be responsible for my mistake. I am at the end of my financial rope, no more cash left. So what would you guys like me to do, should I just walk? I would try a short sell but nobody is going to buy.

I am a moron, I'm just am trying to avoid making our economy pay for my mistake and all it would take is a change from 9.5% to 7%.

Re: Re: hasn't helped me

Oh I agree, I was a total moron for getting in to this and if I could go back I would certainly have not done it. I am the one responsible for taking the gamble and I lost.

Obviously I'm not the only moron out there because 3 out of 5 people I talk to are in the same boat. Our housing market has crashed because we were all morons. Fine I'm good with that. Call me all the names you want but that isn't going to save the economy. I am your problem, I am the next wave of foreclosures, moron or not it is what it is.

I have sold my car to keep up with payments. I have sold my boat to keep up with payments. I have closed every credit card I could to keep up with payments. If I had gotten my usual raises I would be able to make the payments. If I hadn't lost 10k in stocks I could make my payments. IF IF IF..

I talked to three people recently who simply send screw it and stopped paying. I may be a moron but I am responsible and have done everything in my power to be responsible for my mistake. I am at the end of my financial rope, no more cash left. So what would you guys like me to do, should I just walk? I would try a short sell but nobody is going to buy.

I am a moron, I'm just am trying to avoid making our economy pay for my mistake and all it would take is a change from 9.5% to 7%.

Transparency? Where have we been living for the past 8 years. The Cheney/Bush regime has been all about expanding power and hiding their actions. Why would you expect anything different? Is our "change man" going to do anything? Don't bet on it. We have witnessed the greatest theft of the American people since April 5, 1933, Roosevelt commanded all citizens to surrender their gold to the government. No citizen was permitted to own more than $100 in gold coins, except for rare coins with special value for collectors. Gold was thus turned into the same type of contraband as Prohibition-banned rum. Roosevelt announced, “Many persons throughout the U.S. have hastened to turn in gold in their possession as an expression of their faith in the Government and as a result of their desire to be helpful in the emergency.

There are others, however, who have waited for the Government to issue a formal order for the return of gold in their possession.” To speak of the “return of gold” implied that government was the rightful owner of all the gold in the nation, and thus that no citizen had a right to possess the most respected store of value in history. Roosevelt assured the country: “The order is limited to the period of the emergency.” But the order stayed on the books until 1974. The refusal to convert paper dollars into gold meant that the government was “free” to flood the country with paper money and sabotage the currency’s value. The stability of the value of currency is one of the clearest measures of a government’s trustworthiness. Before Roosevelt took office, Americans clearly recognized the moral implications of inflation. Vice President Calvin Coolidge had bluntly declared in 1922: “Inflation is repudiation.” Inflation is a tax whereby government prints extra money to finance its deficit spending. The value of money is largely determined by the ratio of money to goods; if the quantity of money increases faster than the increase in the amount of goods, the result is an increase in the ratio of money to goods and an increase in prices. Thus, the government’s printing presses devalue people’s paychecks and effectively allow government to default on the value of its debt.We have been robbed....AGAIN.

Re: Re: Re: hasn't helped me

I have a hard time believing that you care about the effects of your foreclosure on the economy. Also at 9.5% you must have had a terrible credit rating. I got an 80/20 with 6.5 on the first and 8% on the second and that was at the boom of the housing market. I had no downpayment (thus the 80/20), but then again I was responsible RAN my own numbers and figured out what I could really afford. I am guessing you probably make under 25k a year (I was making that much when I get preapproved for 100k). Why would you think you could afford a 100k house at 9.5%?

Re: Re: Re: Re: hasn't helped me

Of coarse I care, for the same reason everyone else should care. If I foreclose I add to the problem which will eventually come back to me in the end. If this economy falls apart I could wind up jobless and homeless just like anyone else.

Yes I had a bad credit rating, part of buying the house plan was to fix that (which has happened) my credit is great now. Yes I made a mistake, I'm trying to be honest here so everyone understands the real problem. Lots of us made this mistake, lots of us gambled. The point is we can't go back, harping on the what I should have done isn't going to fix this.

This isn't just about me, I'm being an example and excepting the shame of it. You need to take the thousands of people in my position and say what can we do to preemptively avoid this getting worse.

I did do the numbers and I should have been fine. But that's a long explanation that in the end is irrelevant to the problem. I can't go back and change some bad luck mixed with bad timing. If I had bought in 2000 I be getting patted on the back for making a wise choice in investments. That's the problem with investing, you never know when it's going to crash.

Re: Re: Re: Re: Re: hasn't helped me

That's the problem with investing, you never know when it's going to crash.

Exactly, you took a risk and failed. Why is it someone else's problem? I mean if feel sorry for you if you lost your job, but once again, banks cannot dropped interest rates for everyone that loses their job.

Re: They're depositing it in the reserve

Really?? only a month left.. Really?

I suppose you mean of the Bush administration, but lets look at some dirty little facts for just a second.

We will still have much the same congress that created this bailout and voted to pass it, and they passed it before Bush signed it. Oh and the next president, the one that will be taking over in a month, the one that will make this all better? He voted for it also. There are more facts, but I wont bore you with them.

But it does look like we have a lot more than a month left with these morons to me. We will have a different leader of the morons though. That's the kind of change we can count on!

Re: Re: Re: Re: Re: Re: hasn't helped me

Well, obviously I'm no financial wizard but it seems the current attitude of ignoring people who have hit hard times isn't working out that well. But then again they did just get billions for just that.

Seriously, why is it so hard to look at your customers and say "ok he's making an effort and a good customer, maybe we should attempt to work this out". Instead they are encouraging everyone to walk, which is exactly what is happening.

Rooting Around In A Dempster Dumpster Behind One Bank

Guess what I found? Handwritten notes from the bank CFO computing his "take" of the $13 Billion HIS bank got:

1. Executive compensation: $130,000,000 average per executive times ten executives = $1.3 Billion
2. Year End Bonuses: $20,000,000 per executive times ten executives = $200 Million.
3. Executive Retreat: $1,000,000.
4. Payoff of corporate jet: $20,000,000
5. Purchase of other banks in which executives have major stockholder stakes: $10 Billion.
6. Campaign contributions and lobbying expnses: $1.5 Billion
7. Additional loans to customers: ($21,000,000)
Note: Had to foreclose on outstanding mortgages due to shortfall in amount received from Treasury.

Note to Research Dept: Find out process for applying for Treasury loans from Obama Administration. Tell them we might have to close 30 percent of our branches and lay off a third of our employees if we don't get more emergency loans by January 21, 2009.

Re: Re: Re: Re: Re: Re: hasn't helped me

Yeah, I usually agree, it isn't. However, now really isn't the time to look at someone and say "tough shit, you lost". The end result is going to be crushed spirits and lost confidence which is not that attitude the US should be adopting right now. If we're dead set on turning the economy around, we want to gain back the confidence we once had, even if it is more cautious optimism than anything else.

We're all angry at the moronic decisions made by these high level institutions and we're also angry at the moronic decisions people made when making their investments. Problem is it seems people arguing whose fault it is are talking past each other, not realizing that a fair share of the blame can go all around. Why must those that made poor investments be left to die when bigger financial institutions ALSO made poor decisions that put them in extremely hot water?

It's really doing nothing good when we tell people they're screwed and shouldn't have been stupid, especially when they're actually doing something to correct the problem by themselves (beforehand, without help from anyone else). You're welcome to call somebody a moron, but do it when it's an obvious case that someone was not thinking when there was every reason to believe it was trouble from the start.

Half of the nation is now being told they're stupid for making such dumb decisions, but those calling the names don't take into account that the whole nation was thinking about how wise of an investment it was during that time to purchase a house, because it was being drilled into Americans' heads that a house is a good investment, a way to live better. We can keep flipping each other off, but that's just more wasted effort and a distraction from finding and solving the problem, which seems to be ever more elusive these days.

Transparency in the financial community

This reminds me of a goof-up many years ago in a nuclear system I worked on:
"Cutting to the chase", a very expensive machine was built related to the system. The self-taught engineer (who was excellent, but not having been to college, had "holes" in his knowledge) decided he didn't need any "college boys", and did his own engineering. For a reason covered in Engineering 101, the entire project, at a massive cost to the taxpayers, failed.
So, they classified it - problem solved!

Re: Bailout?

oh, killer_tofu, you obviously aren't paying attention! How is a 75% "Pass" vote for the bailout a "Bush Cronies" action? How is it you missed the resounding "NO" vote by most, if not all, of the Republican Representatives (Bush's party)? Do you ever read a newspaper, listen to a nightly news show or listen to news on your radio? Where have you been for the last 18 months while all the wrangling has been going on in Congress? By the way, there is a CLEAR majority in the House of Representatives, and the Senate is ONE senate seat away from being filibuster-proof by the Republican Party, so how on earth do you think it DID NOT pass on the first vote?? The Democratic party will be steam-rollering the American People for years to come and you still think "Bashing Bush" is a viable passtime? Have you looked into Barney Frank's lover's affiliation with Fannie Mae and Freddie Mac? His pillow talk to Barney must have been great when Barney was passing legislation favorable to his lover's employer. Did you check into the campaign donations Fannie Mae and Freddie Mac made to Barney Frank, Nancy Pelosi, Chris Dodd, Reid, Schumer, et al?? Do those names sound like Bush cronies? Although it has been "in vogue" to bash Bush for every disaster, both natural and man-made, I think there are enough bad and corrupt politicians around to bash on for a very long time. Stop reading protest signs and check out the real news stories and the voting records of our elected representatives (?). If you're going to blame everything on Bush, you better get crackin' boy ... he's only available for a few final bashes for another 6 days. That's right, in case you didn't notice, the Democratic party has been in the majority in both the House and the Senate for a couple of years now, and come January 20, they will also have the White House. Better start looking for a couple of new targets for your bashing ... and lucky for you there are plenty in Pelosi's Posse to go around!